How Stack Raised $5m From 11 investors
How to raise from VC when you are a first time founder with no prior experience
Raising funds from VCs is hard. It's even harder when you are a first-time founder without an Ivy League on your resume or an extensive personal investor network. This was precisely my situation when we started Stack in 2019. Even worse, my knowledge about the “rules of the Startup - VC game” was very limited. I even hardly knew what these two letters - “VC”, stood for, let alone how they worked or how much they invested at different stages.
Fast-forward 1.5 years and we managed to raise $5 million across two rounds from 11 investors - 3 angels and 8 VCs. We used varied funding instruments like KISS and SAFE at the pre-seed stage and even did a traditional financing round at the seed stage.
Since then, there have been quite a few cases when we've been asked to share our fundraising experience. And with this article, I decided to organize all my thoughts together, and at the end, also share the investor database and funnel we used. The database is made of 107 VCs with whom I’ve personally met during our fundraising cycles. This isn't just a random list of investors with contact details – as I said, I've personally met every single one of them! And I hope the information organized here and the database below will be helpful for fellow startup co-founders with their ventures.
Let’s dive in…
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“Magic Formula” of Fundraising
There is no “Magic Formula” for fundraising. It's more like a complex equation with various variables, each carrying dynamic weight. Core factors influencing VC decisions include the team (often the most decisive), the product and early KPIs, the scalability of the idea, and the potential market size. External factors also come into play, like the current market climate and sentiment within the investor community. For instance, is it a bull market, or is VC Twitter “screaming out of their lungs” that it’s the end of the world? Are VCs investing only in KPI-based rounds after months of due diligence (2022-2023), or are they throwing term sheets at mere ideas, calling a $15 million round - a Pre-Seed (2020-2021)?
There are also lots of anecdotal cases - teams raising funds in a month from the inception of an idea, and at the other end of the spectrum, instances where it took over three years to secure initial funding. Our story falls somewhere in between these two extremes, which I would consider a more 'typical' or 'textbook' fundraising journey.
We didn't raise a '15m pre-seed,' so our experience might not seem as glamorous or rapid, but what we did worked. And if it worked for us, first-time founders without any significant connections in the VC world, it can work for you as well.
Start by Educating Yourself About the Rules of the Game
If you're an industry newcomer like I was, with tech knowledge limited to high-profile figures like Musk and Zuckerberg, it's crucial to familiarize yourself with the basics before diving into fundraising. Otherwise, it might all sound like gibberish.
Start by gaining a basic understanding of key players in the field, the top unicorns in your industry, their success stories, and leading venture capitalists (VCs), as well as Angel Investors and Accelerators. Familiarize yourself with common fundraising instruments, such as SAFE (Simple Agreement for Future Equity) and Convertible Notes.
The ideal scenario for those new to all this would be to get into the world's top accelerator - YC. If you're lucky enough to make it in, you can disregard this article, they'll teach you there everything you might need for fundraising and beyond. However, YC only accepts a limited number of startups twice a year. So for those who make it in - congratulations! And for those who get rejected four times - don't worry, you can still raise 5 million from 11 investors! But you need to start from somewhere…
And for me, that starting point was YC Startup School. It's a free online course on how to launch a startup, accessible to anyone who signs up on their page. However, I would recommend an even simpler approach - watching videos on their YouTube channel. They have multiple Startup School playlists, but I found the one from 2018 particularly useful.
Another excellent resource that helped me understand the necessary concepts was the Slidebean YouTube channel. When we started Stack, Slidebean was primarily an online pitch deck-building tool. Its CEO had just launched a YouTube channel to drive more traffic to their product, and it eventually became so popular that they now offer Startup Counseling as their primary service. Out of the hundreds of videos available, I highly recommend their playlist on the basics of fundraising.
Furthermore, For insights into successful startups, consider 'This Week In Startups' (TWIST), a podcast by renowned angel investor Jason Calacanis. You will hardly find a unicorn founder that he hadn’t interviewed at some point. You will also discover that gaining insights into their fundraising stories will turn out to be immensely helpful when you start speaking with investors. Here is a Notion page where I have listed the ones that I watched and found helpful. You can find tons of additional interesting content there as well.
Lastly, although the startup world is super dynamic, and methods that work today may become obsolete tomorrow, there are still timeless books considered as 'Bibles' of the Startup World. These two are:
Steven Blank (2005) - Four Steps to Epiphany
Eric Ries (2011) - The Lean Startup
These books kickstarted the lean startup movement, and although they are not about fundraising per se, they would still give you a better understanding of the “language” the VCs and Startups speak. So, I would say, they are kind of must-reads.
I have shared quite a hefty amount of content above. However, it's important to remember that this learning journey is definitely not a sprint but a marathon. The goal is not just to learn the theory of fundraising but to develop a basic understanding of the concepts that will help you in conversations with investors. Therefore, don't spend all your time consuming content; your primary focus should be on building your product and talking with your customers. Use your free time or commute to digest this information. Make these books and podcasts your bedtime stories or shower-time listens. That’s what I did, and it worked.
And while you're in the process of wrapping your head around the basics, start researching tech conferences in your area. This is where your fundraising journey begins…
Tech Conferences and Building up the Investor Network
We're based in the Netherlands, and I can't emphasize enough the value that European tech conferences have brought to us. However, if you plan to attend as a paying participant, it can be quite costly. Initially, with only a few thousand dollars raised from friends and family, covering travel and attendance fees seemed challenging. Therefore, we applied to get selected among those startups that are granted free tickets and booths, and sometimes even the opportunity to pitch in contests. And luckily, we were always selected as one of the top picks by the conference organizers.
Here is an incomplete list of the conferences we attended. Perhaps one day, I'll write an article about these experiences too. It was quite an adventure!
Startup Grind Global Conference (London & Redwood City)
TechCrunch Disrupt (Berlin & San Francisco)
Viva Tech (Paris)
South Summit (Madrid)
Pirate Summit (Cologne)
EU-Startup Summit (Barcelona)
All of these tech events (except for Webit 🙃) brought tremendous value. However, it's important to set your expectations right. It's not as if you'll attend these events and immediately meet people ready to hand you bags of money. Instead, the goal should be to build up your network. Almost all conferences have their own matchmaking platforms. Don't be shy to hustle. Use the platform, research every attendee, and send out meeting invites. Additionally, don't hesitate to ask the conference organizers for help with matchmaking. The highest-quality meetings we had were the ones set up by the organizers themselves.
When meeting potential investors, tell them upfront that you're not currently raising. And that your goal is to establish relationships, keep them updated on your progress, and learn about the KPIs they seek in similar products or services. Ask for their recommendations on other VCs interested in investing in your startup and kindly request introductions.
Additionally, use conference events to showcase your product to as many people as possible. While most will approach your booth to sell you their services, use each interaction as an opportunity to pitch and improve your pitching skills for future investor conversations.
After each conference, send follow-up emails to the investors you met, as well as those you didn't. It's essential to make yourself remembered since investors encounter numerous startups at these events. Follow-ups are a must to stay on their radar.
The Database AKA Funnel
Use Notion to start building your own investor funnel by adding the details of the investors you meet at each conference. This centralized database will help you track your interactions and what you communicate to each investor. Furthermore, as you progress with your product development, other activities like launching an MVP on Product Hunt or being covered by some tech blogs, may lead to investors reaching out directly. After each such call, make sure to promptly update your database with the relevant information about those new investors you meet.
Additionally, connect with fellow startup co-founders and ask for introductions to their investors. Most of them will be super helpful and do the intros. However, every now and then, be prepared to encounter unsupportive arrogant individuals who won’t even share their investor names. And don’t get discouraged by that. It’s fine. Keep on working.
Lastly, research other companies in your industry, and their investors. For example, if your startup is in the productivity/collaboration space, like Stack, investors who have backed the tools such as Notion, Figma, or Linear, could be an excellent fit for you. Use Crunchbase to identify who are their investors and approach them.
The Regular Updates
I once heard Jason Calacanis say that the most telling sign of a startup facing serious problems is when they stop sending regular updates. So, ensure you continue sending progress reports unless your startup is truly on the brink of failure.
There may be reasons you feel like not sending updates; perhaps you're focused on product development and growth and don't see the relevance of sending e-mails, or you might believe you have nothing exciting to share. Regardless, no matter how uneventful a month might be, these regular updates in their inboxes are vital to staying on their radars. And these ritual pays off immensely when you open a new round of funding.
Start by sending quarterly updates, and as you approach the fundraising stage, three months prior transition to monthly updates. Use e-mail trackers to monitor which investors read your updates and open links. Focus on the most important metrics. If your startup is already making money, that metric is MRR (Monthly Recurring Revenue). If you are pre-revenue, use metrics like Sean Ellis Test, Retention, and NPS (Net Promoter Score) and show off how much your user base is loving your product and how are these metrics progressing over time. Speaking of the Sean Ellis test, there is an amazing article by Rahul Vohra of Superhuman on Hacking the Product-Market-Fit. Check that out as well.
And when you believe that you are ready to open the round, and you have your KPIs in the right place along with essentials such as a Pitch Deck and Financial Projections, start sending meeting request emails to all the investors you have been keeping in the loop all this time. This is where the fun part begins…
If you've set up your investor funnel in the same manner most of the startups do, you'll find that some VCs are of high priority, while others are of lower priority. Start with the latter group. It might take numerous calls to reach a point where you sound confident and persuasive in what you're saying. So don’t “waste” top VC calls while you are still learning how to pitch. Be prepared that your initial VC meetings will suck, and you may hear tons of rejections, but don't be discouraged. In the past three years, we have met with more than 200 investors in total and raised funds from 11 of them. This means that I have received at least 189 rejections. And each rejection did hurt! But I signed up for this job. No one forced me to do this. The rejections are part of this game.
If you knew that you were only 100 'No's away from a 'Yes' that could change your life forever, how thrilled would you be to receive the first 'No'? How would you feel when you got the 10th, the 20th, and so on…
There are also a few things to keep in mind about calls and meetings. First and foremost, ensure that you have clear answers to basic questions, such as:
How much are you raising?
Why are you raising this amount?
How long will your runway be?
What is your pre-money valuation?
And how are you planning to secure your next round of funding?
If you end up running a successful startup, most certainly you'll need several rounds of VC funding before reaching profitability. So don't tell investors that the round you are raising will be sufficient and that you won't need future investments. That will only indicate that you have no idea what you are talking about.
Fundraising activities like managing the investor funnel and sending emails should be the responsibility of one person. However, when it comes to investor calls, the presence of two co-founders often works best. Having more than two can result in an overcrowded meeting, so based on our experience, I would recommend limiting VC call participation to two team members.
This approach helps mitigate risks such as unexpectedly blanking out or encountering unusual questions. The presence of a team member to assist in these moments is invaluable. Furthermore, when it’s two of you, you can always share feedback with each other, or even record your first few calls (audio only on your phone) and analyze them afterward together. But make sure you don’t have ego problems. No one pitches perfectly, and you should be open to critical feedback.
Lastly, avoid arguing in front of investors. Even if the robust debate is part of your culture, investors might see this as a sign of an unhealthy relationship between co-founders, which is considered a major risk.
After each call, send the follow-up e-mail with a clear Call to Action and send the latest deck. Ask them when you can expect to hear back. Usually, VCs do Monday Board Meetings where they discuss all the startups they spoke to during the week, so by Tuesday they should know whether you get a follow-up or “you are too early”.
The data room
While the term 'data room' might seem intimidating, it often simply refers to a shared Google Drive or Dropbox folder used for investor Due Diligence. Reaching this stage is indeed an achievement; it indicates that you've convinced at least one partner to consider investing, and she is now trying to persuade other partners to invest. A data room typically encompasses key documents like your Pitch Deck, Financial Projections*, a fully diluted Cap Table, and any other relevant materials that you think may facilitate a favorable investment decision.
At Stack, we chose to take a more creative approach and used our product itself to organize all the information we wanted to share. For context, Stack is a next-generation browser, making it possible to organize your web content spatially. You can also build spaces of web apps per project or per type of workflow. While preparing the data room – we realized that it was also a collection of Web Apps - a Google Sheet for financial projections, a Notion page for team details, a DocSend link for the pitch deck, etc. So we decided to organize these files into a shareable Stack Space and shared it with investors. They had the choice to open each file in conventional browsers, creating a tab clutter, or use Stack, import the shared space, and access the data in a well-organized layout. In this way, we also showcased the benefits of Stack over conventional browsers, while sharing the data room. You still can find the link to our old data room here, but some of the files will be inaccessible for obvious reasons.
Nonetheless, keep in mind that there is no need to go above and beyond with the design of your data room, as we did. What's in your data room matters way more than how it is presented. But it's worth noting that our creative approach did impress the investors.
*Financial Projections is arguably the most mundane document you have to include in your data room. And you should avoid spending an excessive amount of time on it. The main idea is that investors want to get a sense of whether you have a basic understanding of your projected burn rate for the upcoming period and how much money you anticipate making. So there's no need to spend weeks crafting this document. Spending a day at most would be entirely fine. Aim to be ambitious with your estimations but avoid being overly so. Remember, everyone knows these figures are speculative. The key thing investors want to see from your projections is your thought process and the reasoning behind the numbers you show.
Yaaayyyy! You've made it to the last and often perceived as the most tedious, part of the fundraising process - the closing. But if you've made it this far, it means things have been progressing quite well for you.
There are several conventional and widely used instruments for raising funds, such as Convertible Notes/Loans, SAFE, KISS, and others. Then, there's the priced round, during which you issue shares that investors purchase. I won't delve into explaining these concepts here, as they are explained in much more detail in the resources I've shared above.
Having gone through both SAFE and Convertible Note/Loan agreements, as well as a Priced Round, one thing is clear: you should avoid the latter unless you're raising at least 1.5 million dollars. Why? Because it's not something you can manage independently and you'll need legal partners. We partnered with OMM, an exceptional firm, truly the best of the best. However, be prepared for the invoice at the end to be in the ballpark of $150,000.
Therefore, unless you have a very complex, multi-layered structure of Convertibles to untangle, or an investor insisting on doing a Priced Round (which generally doesn't speak well on that investor, suggesting they might not be fully aware of industry standards), opt for SAFE. The costs associated with a SAFE are minimal to none, living up to its name - a Simple Agreement for Future Equity.
Stack Investor Database
Below you will find instructions on how to access and use the database and convert it into a funnel I used during our fundraising cycles. As I mentioned earlier, this isn't just a random list of VCs with contact details and descriptions. Over the past three years, I've personally met and interacted with each and every one of them.
Earlier I suggested using Notion because of its strong database features. As seen in the screenshot above, by default, the investors are grouped into seven categories: Accelerators, Angels, and five different sizes of VCs based on the total funds raised. Hence, Group 1 comprises VCs that have raised more than $2 billion, Group 2 includes those in the range of $500 million to $2 billion, Group 3 - $100 to $500 million, Group 4 - $50 to 100 million dollars, and Group 5 includes those with less than $50 million raised.
Without a doubt, securing backing from Top VCs is a goal every startup should aspire for. Once high-tier VCs back you, others often ‘flock around’, sometimes without conducting any proper diligence. For smaller firms, co-investing with VCs like Sequoia or a16z is often considered a noteworthy accomplishment, something they highlight when reporting to their LPs (Limited Partners - the rich people or entities whose money they're investing in your startup). However, beware, having top-tier VC in your cap table can be a double-edged sword. If they decline to participate in your follow-up funding rounds, it will be perceived as a significant red flag for others, dramatically reducing your chances to raise again.
Getting back to the database, Notion provides the flexibility to re-arrange and organize the data in a way that's most convenient for you. You can re-group the cards by country, their activity level, or transform them into a funnel to track the progress of your fundraising efforts with each VC. Each card also provides space for tasks and a to-do list specific to each VC, as well as a section for meeting notes.
If you decide to use it as a funnel, you will have to group them by status. All VCs in the database initially have a default status termed - 'List.' As you begin interactions and send out initial emails, you can move each card to the relevant status column, such as 'Email Sent,' 'Reminder Sent,' or 'First Meeting Scheduled', etc. The final status columns are 'Ghosted,' 'Rejected,' or 'Closed.' You will also find the 'Ghosted' and 'Rejected' columns filling up quickly at the start, but remember, that's part of the process! The goal is to achieve at least some cards to shift into the 'Closed' column too.
The best way to get your cards from the ‘Email Sent’ to the ‘First Meeting Scheduled’ column is through a warm lead. The database includes the LinkedIn profiles of all investors, so try to search for mutual connections who could do the intro.
However, establishing these connections can often be challenging. In such instances, I recommend adding their e-mail addresses to your general company update list. VCs interact with tons of start-ups, so receiving such an update directly won't seem that unusual. For instance, if you plan to open a funding round in 6 months, consider sending several non-personalized update emails in the lead-up to your meeting request. By the time you initiate the round and start requesting meetings, investors will likely have skimmed through a few of your updates in the past and your name won’t be that unfamiliar. While this method might not have the same impact as a warm intro, it’s certainly more effective than a typical cold e-mail asking directly for a meeting.
And that’s it! You can request the link to the database by visiting this page. And I truly wish you the best of luck! May you fill-up the 'Closed’ status column with the most desirable VCs for you in the shortest possible time!
In this article, I've shared my personal fundraising experience. I've outlined the steps we followed, what worked for us, and what cost us a fortune! I have also shared a plethora of additional content to wrap your head around if you are a complete beginner, links to the conferences we attended, and what’s most important - our VC database. As I said, my primary goal was to organize all my thoughts and resources in one place, which I think I've well achieved.
In case you've found this article helpful, feel free to follow on Twitter.
Lastly, don’t forget to check out Stack. That’s the product that made it possible for us to raise that funding, travel around the world, participate in all those conferences, and gain tremendous experience.
Doing fundraising right requires an organized and focused digital workspace, and Stack truly excels at that! If, like me, you find yourself dealing with numerous web apps daily, I highly recommend giving it a try!
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